Starbucks story still has buzz: Pro
In what has been a challenging environment for restaurant chains, Starbucks continues to brew up strong growth and one analyst says there's still more to come.
At a time when restaurants are seeing slower traffic, consumers are still looking for their caffeine fix. And on Thursday Starbucks hiked its full-year outlook after delivering strong sales growth across the board for the third quarter.
"There wasn't much more you could ask for from the numbers," Morningstar analyst R.J. Hottovy told CNBC on Friday. "Comps were great, they showed a lot of great traffic gains especially at a time when a lot of competitors were eking out any kind of traffic gains if not traffic losses."
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Hottovy said the 7 percent gain in traffic on a global basis was the clear highlight of the quarter, as Starbucks continues to launch new products, update its food offerings and uses digital and social media better than the competition.
"I think as they start to ramp up the expansion on some of the newer brands," like Teavana, Hottovy said, "a lot of those same things will translate over. This is a story for the long term."
While competition appears to be picking up in the coffee business, Hottovy doesn't see reason to worry about Dunkin Brands' expansion plans, particularly in California.
"I think they're serving slightly different audiences," he said. "Starbucks skews a little more to the affluent customer. I think Dunkin' has a great strategy and there's room for multiple players."
Starbucks CEO Howard Schultz would agree, telling CNBC on Friday, "We respect all of our competitors but I think Dunkin' and McDonald's, they're in another business, they're in the fast food business."
Morningstar's Hottovy is not alone in his bullishness on the Starbucks story. Analysts across Wall Street hiked price targets on the stock after the strong quarterly numbers. Janney raised its fair value estimate to $85 from $75, while Jefferies upped its price target to $84.
"I think somewhere in the mid-$70s is the appropriate price based on what I'm seeing," Hottovy told CNBC. "It may look a little lofty at 28 times, the midpoint of next year's earnings, but this has one of the longest runways of growth in the consumer cyclical space now. I would be a buyer at these levels."
Hottovy and Morningstar had no conflicts to report.